AMC Remains a Trainwreck

AMC Entertainment Holdings Inc. (NYSE: AMC), the big movie theater group, has posted a share price increase of 120% this week. It has a market cap of $11.9 billion, which is impossibly high for a company with its battered finances and poor prospects to ever deliver reasonably good earnings. Both the company and the industry it is in have only a few potentially good years ahead of them, and that forecast may be too generous.

AMC has avoided going out of business in the short term. It raised $917 million via debt and equity in January. It raised another $428 million this month. Without an inflated share price, this would not have been possible. Speculators have inexplicably driven its share price from $1.91 to almost $30, based on the 52-week price of the stock. That has ruined some short sellers, as well as investors who have been unable to time their entrance or exit from the stock as its price has gyrated wildly.

Much of the trading activity has been triggered by people on social media, particularly Reddit and Twitter, who have encouraged investors to buy the shares. It is unclear who many of these people are or what they stand to gain from the changes in the share price. Experts in share price activity in deeply troubled companies and the media have asked questions about these motives, but there have been no solid answers. There is certainly worry that some of the trading is “pump and dump” activity.

One measure of the absurdity of the share price is AMC’s profit and loss statement. In the first quarter, its revenue was $148 million, compared to $941 million in the same period a year ago. Even when the company was healthy, its revenue run rate was $5 billion a year. In the first quarter, the company had a net loss of $567 million. Part of the argument for the stock’s current high value is that its revenue might return to normal. Its 2018 figures are the best yardstick for that. AMC posted revenue of $5.5 billion but made only $110 million, an extremely small margin. At that very modest level, a market capitalization of nearly $12 billion cannot be justified.

AMC faces two critical hurdles, neither of which can be overcome. The first is that the COVID-19 pandemic is not over and may worsen again in the United States. Even if the spread of the disease in America remains as it is now, many people will not return to crowded public places.

More important, streaming companies, led by Netflix, Amazon and Disney, have drawn people away from theaters as they watch full-length movies at home or, with the ability to stream to portable devices, anywhere. Unlike theaters, these services offer thousands of movies on demand.

AMC does not have a future, which makes its share price wildly high.

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